MARC Ratings has affirmed its foreign currency sovereign rating of AAA/stable on the Republic of Singapore (Singapore) based on its national sovereign rating scale. The AAA rating reflects a number of Singapore’s strengths, including having a dynamic and competitive economy underpinned by strong economic policy frameworks and effective institutions.

Singapore’s success as a global business and financial hub has been and continues to be underpinned by sound economic management, as well as credible governance and institutions. Thanks to, among other things, extensive policy support, swift vaccination rollout and strengthening external demand, the economy has staged an impressive rebound from a pandemic-induced recession. Real GDP, which had contracted by 4.1% in 2020, surged by 7.6% in 2021. Its recovery was one of the strongest among the advanced economies.

The rating also takes into account strong fiscal discipline, as reflected by the government consistently recording more fiscal surpluses than deficits. As a result, the government continues to enjoy ample fiscal policy space. In addition, its external position remains robust, as evidenced by strong current account (CA) surpluses (2021: 18.1% of GDP; 2020: 16.8%). Consequently, the city-state has managed to accumulate a massive stock of foreign exchange reserves (2021: USD417.9 billion).

Given that the economy is small and open, and therefore exposed to external developments and shocks, growth volatility is high. However, on balance, we do not expect it to greatly affect its macro-financial stability, given its robust external balance sheet.

Singapore’s ageing demographics remain a key challenge and efforts to address this structural issue continue. For instance, to support greater social spending associated with an ageing population, the government announced a staggered increase in the Goods and Services Tax (GST) rate in Budget 2022.

The stable outlook reflects our expectation that Singapore’s strong governance and institutions will continue to ensure sound economic management and fiscal discipline. Given its international competitiveness, we also expect its external position to remain robust.